Many small business owners are intimidated at the prospect of trying to build business credit. Some realize it’s important to earn strong business credit scores and reports, but don’t know how to start the process.
Thankfully, building good business credit doesn’t have to be difficult. In fact, if you start by opening a few strategic vendor accounts, you might be surprised just how easy it is to send your business credit scores moving in the right direction.
How Do Small Businesses Get Credit?
The basic formula you need to follow to establish business credit isn’t difficult to understand. Generally, you need to start by opening accounts with companies who report your payment history to the credit reporting agencies.
The three major commercial credit bureaus are as follows:
- Dun & Bradstreet
A business account which appears on your credit report is called a tradeline. A tradeline could be a business credit card, loan, or vendor account (ie net-30, net-60, net-90).
To qualify for a business credit score, like a PAYDEX Score (different from a DUNS number), you may need to open four or more tradelines. If a lender, credit card issuer, or vendor doesn’t report your account to the credit bureaus, opening an account with that company won’t help you build business credit.
Once you have business tradelines established, your next step is to pay your new accounts on time. While on-time payments certainly matter when your personal credit score is calculated, timely payments are even more important where a business credit score is concerned. In the business world, keeping an early payment schedule may also earn you a credit score boost.
How to Establish Business Credit for the First Time
Before you can try to build a solid business credit score with well-managed tradelines, you’ll have to clear one hurdle first. You’ll need to find someone that’s willing to extend credit to your company. This isn’t difficult as long as you know where to look.
When your business is new (or even just new to credit), you should search carefully for your first credit accounts. Not only do you need to find companies that report to the business credit bureaus, you also need to find companies with easy approval criteria. In other words, you need to find companies who are willing to offer financing to startups and businesses without an established credit score or credit history.
Vendor accounts that report to the business credit bureaus might be the perfect fit.
The BusinessLauncher tool in your free Nav account can help you find vendors who report. Nav also offers MatchFactor technology that can show you how likely you are to qualify for an account before you apply, based on your credit profile.
What Are Net 90 Vendor Accounts?
Vendor credit, also called trade credit, is a type of short-term credit your business may receive from suppliers or service providers. With vendor accounts, your business can buy now and pay later for the goods and services it needs to operate.
Many types of B2B companies may be willing to offer vendor accounts. For example, if your business relies on advertising services, office supplies, technical support, or raw materials used to manufacture merchandise, you might be able to find a vendor that’s willing to offer you trade credit for your purchases.
A net 90 vendor account refers to how long a supplier or vendor gives you to make your payment. When a vendor approves you for a net 90 account, it means you don’t have to pay for the goods or services your company receives until 90 days from your invoice (though you might be offered an early payment discount if you make your invoice payment sooner).
List of Easy Approval Net 30 Accounts
Vendor accounts represent one of the easiest ways for businesses to build credit. According to a small business credit survey by the Federal Reserve, 84% of applicants who applied for trade credit were approved for at least some financing.
While net 90 terms tend to be less commonly offered by vendors, especially for startups, net 30 accounts are easier to find and qualify for as well. You may even be able to open a net 30 account with no personal credit check and no personal guarantee.
For a list of easy approval net 30 accounts, check out this helpful guide from Nav.
List of Net 60 Vendors
When you qualify for a net 60 account with a vendor or supplier, your company will have around two months from invoicing before payment is due. This can be a great way to stretch your cash flow and free up money for payroll and other business expenses without having to borrow money from a bank or online lender.
If you’re searching for a list of net 60 vendors who might be willing to extend credit to your company, here’s another helpful guide from Nav.
Why It Pays to Ask for Terms
You can also ask the vendors and suppliers that you purchase from regularly if they’re willing to offer your business invoice payment terms. If they say yes, net 30, net 60, or net 90 terms can help you to improve your working capital and potentially relieve some financial pressure. If the vendor already reports trade accounts to a commercial credit bureau (or is willing to do so), even better.
It may also be possible to negotiate better terms with the vendors who already offer you trade credit. If you’ve had a net 30 account with stellar payment history for some time, your vendor might agree to extend your terms to net 60 or even net 90 when you ask.
Even if your business isn’t strapped for cash, asking for trade terms could still be a wise move. The New York Times reports that many large corporations ask for extended terms to pay their creditors as part of their business strategy. Kellogg, Mars, Procter & Gamble, and Heinz are just a few mega corporations who ask (and receive) generous payment terms from suppliers — sometimes as high as net 120.
Working with vendors who are willing to extend you terms (net 30, net 60, or net 90) can help you to stay competitive. When those vendors report accounts to the business credit bureaus, you can benefit again from your trade accounts as they help you to build a solid business credit profile.